Chinese Government Issues the Third Amendment to the Trademark Law to Strengthen Trademark Protection

The National People’s Congress passed the Third Amendment to the Chinese Trademark Law (the “Third Amendment”) on Aug. 30, 2013. The amended Trademark Law will take effect on May 1, 2014.

The Chinese Trademark Law was first promulgated in 1982 and amended in 1993 and 2001. The central government made public the first draft of the Third Amendment in 2003. It went through several rounds of public review and comment before the final version of the Third Amendment was issued at the end of August 2013.

Background
China currently has 6.4 million registered trademarks, more than any other country in the world. However, the current Trademark Law in China cannot fully address all the demands of the rapidly developing market. Various practical problems have existed for years, such as inefficient registration procedures, extensive bad faith trademark squatting, and continuous trademark infringement. The Third Amendment seeks to address those problems.

Below are the primary changes to be enacted by the Third Amendment.

1. Registration of Trademark
According to the Third Amendment, applications for trademark registration can be submitted in the form of either paper-based or electronic data. Before the Third Amendment, most applications were filed on paper. In 2009, the State Administration of Industry and Commerce (“SAIC”), the national government agency that administers trademarks, carried out a pilot program of electronic filing of trademark registration applications. The pilot program allowed only certain qualified agents to file applications electronically. The Third Amendment makes the electronic filing applicable nationwide.

Under the current Trademark Law, before a trademark is registered, the application for registration must go through the process of (1) examination, (2) announcement of preliminary approval, (3) objection period, (4) review by the Trademark Review and Adjudication Board (“TRAB”) of the SAIC (only if an objection has been filed and either the applicant or the opponent disagrees with the result of the objection examination), and (5) final decision issued by the China Trademark Office (“CTO”) of the SAIC as to whether to register the trademark.

The Third Amendment provides for a period of nine months for the examination process of trademark registration. Currently, there is no specified timeframe for the examination process. In practice, it usually takes 10 months or more.

The Third Amendment also sets a limit of 12 months on the objection examination period. Specifically, if an objection is filed against the pre-approved trademark, the CTO must examine the objection and make a decision on registration of the trademark within 12 months after the preliminary approval. In special cases, the 12-month objection examination period may be extended for an additional six months, as needed upon the approval of the SAIC.

Further, if the CTO, after examining the objection, decides not to register the trademark, the applicant may apply for a review by the TRAB. The Third Amendment requires the TRAB to complete its review within 12 months of receiving the review application. In special cases, the 12-month period may be extended for an additional six months, as needed upon the approval of the SAIC.

Currently, it is not uncommon for the objection and/or review process to take years to complete. The above two 12-month time limits provide some certainty about the length of the trademark registration process.

Under the current Trademark Law, words, designs, letters, numbers, 3-dimensional marks, combinations of colors, and combinations of any the foregoing can be registered as a trademark. The Third Amendment allows “sounds” as well as a combination of sound and any of the foregoing to be registrable as a trademark.

2. Recognition and limitation on well-known trademarks
The 2001 version of the Trademark Law introduced the concept of “well-known trademarks.” It generally refers to a mark that is widely known by the relevant public and is highly reputable in China. The purpose of well-known trademarks is to provide an enhanced level of protection for widely known trademarks from counterfeiting and infringement.

The Third Amendment expands the protection afforded by the 2001 Trademark Law by curbing advertisements of well-known trademarks that associate them with goods of premium quality or top brands. Specifically, the Third Amendment prohibits the use of well-known trademarks on goods or packaging, and use in advertisements, exhibitions or other commercial activities.

The Third Amendment provides that the CTO of the SAIC, the TRAB of the SAIC and courts may recognize well-known trademarks in the course of handling specific cases. The 2001 Trademark Law was silent on this point, which resulted in uncertainty about the status of well-known trademarks in such proceedings.

Currently, under the Anti-Unfair Competition Law, it is unfair competition for a business to use for its own product a name or packaging which is the same or similar as the name or packaging of another business’ “famous product” if such use could mislead customers. However, under current law, there is no legal definition for “famous product.” The Third Amendment clarifies that abuse of a “well-known trademark” is also a form of unfair competition, thus creating more consistency between the Trademark Law and the Anti-Unfair Competition Law.

3. Bad faith trademark squatting is prohibited
Under existing law, distributors or sales agents have been known to register in their own names the trademarks of their suppliers or principals. Before the Third Amendment, the only remedy for defending such bad faith squatting was that, after the trademark in question had been successfully registered, the prior user of the trademark (i.e. supplier or principals) could, within five years of registration, petition the TRAB to announce that the trademark was invalid.

In addition to the above remedy, the Third Amendment provides broader protection against bad faith squatting by prohibiting registration of a trademark that is identical or similar to an unregistered trademark used by another person where the applicant knows of the unregistered trademark because of a prior contract, business contact or other relationship.

However, this prohibition applies only if the unregistered trademark owner files an objection to the registration. The objection must be filed during the objection period, i.e. within three months after announcement of the preliminary approval. The opponent may be required to prove that the unregistered trademark was used during the previous three years. Upon investigation and examination, the CTO will determine whether squatting has been established and whether to register the trademark.

4. Protection against trademark infringement is strengthening
Under the current Trademark Law, trademark infringement disputes may be settled by negotiation between parties or by litigation or may be handled by the Administration of Industry and Commerce. If the Administration of Industry and Commerce finds that trademark infringement has been established, it may order cessation of the infringing activity and confiscation or destruction of the infringing commodities and tools that are primarily used to manufacture the infringing commodities or labels, and impose fines.

The Amendments specify the amount of the fine that the Administration of Industry and Commerce may impose: (1) if the illegal revenue is RMB 50,000 or more, it may impose a fine of up to five times of the illegal revenue; and (2) if the illegal revenue is less than RMB 50,000, it may impose a fine of up to RMB 250,000. If the infringing party commits infringement activities twice or more within five years, it may be subject to severe punishment.

According to the Third Amendment, in a trademark infringement case, if the actual damages, the value of the interest obtained and the licensing fee are all difficult to determine, courts may award compensation of up to RMB 3 million based on the “specific infringement details”. Before the Third Amendment, the maximum compensation that courts could award was RMB 500,000.

The Third Amendment also provides that, if the plaintiff has made its best efforts to provide evidence but the accounting books and materials related to the infringement are controlled by the infringing party, courts may require the infringing party to provide the relevant accounting books and materials in order to determine the amount of compensation. This may be helpful to reduce the burden of proof of the plaintiff.

5. State Council is seeking public comments on the draft revisions to the Implementing Regulations of the Trademark Law
In order for the amended Trademark Law to be implemented, the Implementing Regulations of the Trademark Law (the “Implementing Regulations”) were revised recently. The State Council is now seeking public comments on the Draft Revisions of the Implementing Regulations.

The Draft Revisions are designed to provide detailed guidelines for the implementation of the amended Trademark Law and to make the law enforceable. Among others, the Draft Revisions include the following:

The Draft Revisions define “similar commodities” as commodities that are identical or substantially the same in function, use, production sector, distribution channel and/or customers; “similar services” are defined as services that are identical or substantially the same in purpose, content, method and/or customers; “similar trademarks” are defined as trademarks that are similar in style of characters, pronunciation, meaning or composition and color of a device, or similar in the integral structure after combination of each aforesaid element, or similar in stereo shape, combination of colors and/or sound. The above definitions are not covered in the current Implementing Regulations, but were specified by the Supreme Court in the Judicial Interpretation on Several Issues regarding Application of Laws in Trials of Cases of Civil Disputes over Trademark in 2002.

If an applicant applies for registration of sound as a trademark, it must submit a sample of the sound and explain how the sound will be used as a trademark.

As discussed above, the amended Trademark Law provides for time limits on the examination process of trademark registration, objection examination and review process. The Draft Revisions list several situations not covered in the time limits, including supplementing or correcting the materials submitted, re-exchange of evidence, waiting for the result of a case in determining prior rights, and a negotiation period between parties.

6. Conclusion
The Third Amendment to the Trademark Law will take effect on May 1, 2014. We anticipate that the final version of the Revised Implementing Regulations will be issued shortly after the Third Amendment becomes effective. The Third Amendment to the Trademark Law, together with the Revised Implementing Regulations, should add real and meaningful new protections for trademark owners.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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